Economic Modeling of Farm Production and Conservation Decisions in Response to Alternative Resource and Environmental Policies

Growing concern over resource use and protection of the environment has prompted greater demand for agricultural policy analysis at the local, regional, and national levels. Faced with declining surface-water quality, silting of reservoirs, and contaminated groundwater supplies, the public has demanded greater protection of the environment. With the call for more regulation of agriculture comes the need for policy analysis, What policy is best? Should a national standard apply, or do local conditions warrant local standards? Who will benefit, and who will lose, and by how much? Past analyses have examined policy options at all levels. The initial focus here is on current means of analyzing policy impacts at the farm level. Components include various means of reflecting the decision environment in which agricultural producers operate as well as alternative behavioral assumptions within that environment. That decision environment generally includes stochastic production of both positive (generally crops or livestock) and negative (primarily pollutants) outputs. Alternative means of reflecting production of these biological and physical outputs are examined. Selected past studies are reviewed, coupled with suggestions for methodologies for future research efforts. Means of aggregating farm-level results to regional or national levels are then discussed. Resource and conservation policies, such as the Conservation Reserve Program, Conservation Compliance (Glaser), or the Clean Water Act (Harrington, Krupnick, and Peskin), were all initiated at the federal level. Imposition of a national policy, even if enforced locally, has both national and local implications. In most cases, regulation of resource use alters input demand and/or output supply, with